My client offers a CPD service which certifies teachers to teach. She does online webinars and workshops. They receive certificates etc when course are completed. This Ltd Co is nearing the VAT registration threshold.
She is moving to a new area and has been approached to teach some classes... not to teachers but to clients. Approx. £10k turnover p/a. Very little costs. Could this be sole trade income as this would push her Ltd Co over the threshold?
I think this would be ok. Its completely different from the Ltd Co work.
Any thoughts? Would this be risky?
Replies (6)
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Disaggregation
Although the client base is distinct, the nature of the work is broadly similar. A HMRC Officer might well consider it a single business. Therefore, to separate is risky, especially if the result is loss of VAT.
Keep them strictly separate
As it is a new business, there would be no split of the original business, and there would not be any retrospective effect even if HMRC were to notice one day. As I understand it, HMRC could only issue a direction with effect going forward.
The tests are whether there are economic, financial and organisational links between the two, so I would do everything possible to keep them separate, such as using separate computers and software Obviously as separate entities (ltd co/ sole trader) there would be separate bank accounts. Personally I would go for it.
Tricky but...
Just as a fundamental point, if the teaching to individuals as a sole proprietor is education that would be delivered in schools or universities, it may be exempt from VAT (provided the sole proprietor legal entity is the one making the supply.
Also, teachers who are being trained to teach and individuals receiving a course are all still individuals I presume as opposed to being 'in business'. So is this different?
I have just delivered some in house training on this, but the answers are no easier. I share Les's nervousness as presumably there is a single decision maker for both businesses and therefore it may be easier to argue that the businesses are 'closely bound'. Just a few points though.
1. There must be economic, financial AND organisational links
2. Motive (to try to avoid VAT) is not relevant anymore but used to be years ago. But if there is no business reason, you may struggle. Is there a regulatory reason etc for the company courses that may not apply to the classes to individuals?
3. HMRC can issue a direction to account for VAT under a single registration and this takes effect from a current date. However, if they can prove that the separate entities are a sham, they can go back 20 years.
4. If the businesses are separate, they must be in all respects. Any shared use of assets etc should be recharged at a proper price.
One final thought. Are any of the current customer based in other countries and are businesses, ie self employed teachers or schools etc? If so, the income may be outside the scope of VAT and this income would not count towards the £81k.
Hope this helps.
Schools etc
The rule is whether the education is of a type that would be delivered in schools. My understanding is most solo yoga instructors are VAT exempt. But I could be wrong